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2016, January 20th — Wealth solutions

Wealth transfer: an important moment of truth

Catherine Motamedi
Catherine Motamedi,
Head of Wealth Solutions
Edmond de Rothschild (Suisse) S.A.
— Often a family's fortune can be made and lost in just three generations. Challenges for preserving wealth arise when there is a lack of trust and communication within families and when heirs are ill prepared. To secure family wealth over time, planning an estate – by protecting assets and preparing future heirs – is as important as managing that wealth appropriately. The Edmond de Rothschild Group, which is heir to a 250-year-old family tradition and has successfully navigated seven generational transitions, has a deep understanding of these concerns. Interview with Catherine Motamedi, Head of Wealth Solutions at Edmond de Rothschild (Suisse) S.A.

In your experience, what are the main sources of difficulties for a family during a wealth transfer?

From a legal and tax perspective, four key factors can complicate any estate:

What precautions can parents take to avoid these difficulties?

A number of different solutions exist: some are easy, while some are more complex. The complexity chiefly depends on the volume of assets, the number of children, the number of different countries in which family members are resident, and the location of the assets that comprise the family's wealth. The fairness of the division of wealth as perceived by the children may also create added difficulties, whether or not this is justified.

Families should start by answering a series of easy questions: did you sign a pre-nuptial agreement?end

Advisors are often tempted to recommend that clients directly set up holding structures. I think that before this, families should start by answering a series of easy questions:

Each family is unique, and the transfer of wealth is also unique. Depending on the amount of assets involved, creating a trust may help in organising an estate and managing its transfer, and even enable the transfer of wealth to be deferred in the period following the death of the trust's founder. The trust may also be a pedagogical tool that helps explain the measures taken by its founder to divide the estate among his or her future heirs. Parents can explain to their children why they have not all been treated equally and whether or not they intend to make up for what could be seen as unfair treatment when it is time to deal with the estate.

Do the only precautions to be taken concern the assets?

Strong family governance is essential – with family members acting according to the same values and beliefs.end

We have seen that beyond asset structuring, settling an estate is fraught with difficulties due to future heirs being ill prepared and owing to poor communication between generations as to the expectations of each family member, their role and responsibilities.

An estate is better protected when there is strong family governance, with family members acting according to the same values and beliefs, and clear communication of what is expected by each present and future generation.